China passed a law this summer requiring foreign workers and their employers to contribute to a social security fund. The result has been confusion among business and bureaucrats alike about how it will work.

Underscoring the uncertainty, the Ministry of Human Resources and Social Security said in a press briefing Friday that it doesn’t quite have the plan all in place. Many of the details of the law are still being ironed out, said Xu Yanjun, the deputy director of the Ministry of Human Resources and Social Security.

Still, the details offered Friday represent the best information yet on the burden employers – particularly foreign companies – will face as China moves to create the sort of social safety net commonly found in other countries and long demanded by its population.

The lack of clarity has caused a stir among China watchers and foreign residents in the country as the social security plan–which covers pension, medical expenses, unemployment, work-related injuries, and maternity–will have a significant financial effect on businesses with foreign staff.

To date, no city in China has begun to collect the taxes, despite the law having gone into effect on Oct. 15. But all local governments will begin collecting by the end of the year and the payments will be retroactive. That means that no matter when the system actually launches, payments will be required from the date of Oct. 15 forward, said Mr. Xu.

City governments decide the level of contributions to be paid by the company. Beijing, for example, would require payments of 20% of a worker’s monthly salary for pensions as well as another 10% for medical.

But then there’s the cap. Some businesses have been reassured by the fact that payments will be capped based on the local minimum wage. For example, Beijing would cap the payment at 12,603 yuan ($1,981). Other places, however, would offer their own cap levels, further complicating the process. The city of Dalian, for example, has no cap at all, potentially making foreign employees quite expensive.

Another component the government has yet work out is unemployment insurance. Foreigners who lose their jobs in China typically also lose their right to live in the country, making it difficult for them to actually collect their unemployment.

“We’re aware there’s a disconnect and we’re informing the employment and visa bureaus so that we can address the problem,” Mr. Xu said.

There are an estimated 600,000 foreigners living in China, nearly 232,000 of which have work permits, according to 2010 Census data. For most of those workers, the country’s plan duplicates insurance programs that employers already provide them.

The Ministry of Human Resources and Social Security claims that duplication is not a problem. Foreigners who are from countries that have bilateral social security agreements with China can opt out of the program, provided that their home countries send proof that insurance has been paid at home, Mr. Xu said.

To date, only Germany and South Korea have bilateral agreements with China. Japan, Sweden, France, and Belgium have approached China to negotiate such deals, Chinese officials said.

The U.S. “has not expressed a wish to carry out bilateral agreements,” said Mr. Xu, adding that the Ministry gave advanced notice to all countries prior to the law’s passage.

China is quick to defend its new system. Officials point out that most other countries have similar social security plans for foreign workers. “Some people are worry that this will impede international talents from working in China,” said Mr. Xu. “But we believe this will bring welfare to those talents.”

Leaders have been emphasizing the rise of their own domestic social security scheme, which demographers say is necessary because of a ballooning aging population.

When asked if China is using foreigners to help fill a deficit needed to care for its aging citizens, Mr. Xu said, “We have no intention of grabbing money from foreigners, and the money of these 200,000-plus workers is insignificant when we’re talking about the welfare of China’s entire population.”

While Mr. Xu said the plan is still being formulated, he also said that foreigners have been too skeptical. “Trust China,” he said. “Trust the Chinese government.”

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